Congress eyes tax breaks for cleaner fuel

Lawmakers under increasing pressure to address climate change

By

ElizabethDavidz

WASHINGTON (MarketWatch) -- As environmentalists, businesses and state officials step up their efforts to lower greenhouse gas emissions, Congress is looking at a wide variety of tax incentives for cleaner energy technology.

The Senate Finance Committee this week not only looked at tax breaks for "green" energies like wind power, biodiesel and ethanol but also for cleaner, smarter use of the fossil fuels like coal and natural gas that provide most of energy in the U.S.

"Never before have we witnessed such intense interest in -- and rapid growth of -- renewable energy efficiency technologies," said Dan Arvizu, director of the National Renewable Energy Laboratory, a leader in the Department of Energy's effort to find economically stable environmental technologies.

Although there's still some isolated political debate about whether global warming is real, Congress is feeling pressure to address climate change quickly. The focus has been on lowering greenhouse gas emissions, either by using alternative energy or capping fossil fuel emissions.

Alternative energy still is more expensive than energy derived from fossil fuels like coal and natural gas, but the margins are shrinking as technologies to capture energy from wind, plants and other sources improve, making them more cost-effective.

Tax incentives could be the boost alternative energy sources -- as well as cleaner fossil fuel technologies -- need to truly compete with traditional fossil fuel energy. The hearing witnesses, mainly renewable energy groups, agreed a renewable energy tax credit would be the most effective measure the committee could take to lower emission levels.

Finance Committee Chairman Max Baucus, D-Mont., said the committee plans to hold more hearings on energy conservation, and on oil, gas, coal and alternative fuels. There is no specific tax incentive legislation on the table yet. In the House, the Ways and Means Committee plans a similar series of hearings on energy and tax policy.

The Senate committee witnesses backed alternative energy sources, but acknowledged that the short-term solution is to lower fossil fuel emissions.

The dirtiest of these technologies, with the highest carbon dioxide and greenhouse emissions, is coal. Twenty-five states get more than 50% of their electricity from coal-fired plants. Politicians and scientist are looking for ways to lower carbon emissions from these plants through capturing and storing carbon in their emissions.

Robert Socolow, co-director of the Carbon Mitigation Initiative at Princeton University, said that the technology for capturing carbon is improving, although the technology for storing this carbon has farther to go.

The cap-and-trade approach

Businesses say they have little incentive to try these technologies unless there are federal incentives -- such as research grants, tax breaks or mandatory emission caps. Their favored incentive is a cap-and-trade system, which also is popular on Capitol Hill and state governments. At least five different versions of a federal cap-and-trade system have been introduced on the Hill.

In a cap-and-trade approach, companies could not exceed carbon dioxide emission caps without buying credits from companies below the caps.

On Monday the governors of California, Oregon, New Mexico, Arizona and Washington announced places to reduce greenhouse gases through a cap-and-trade system. New England states and New York already adopted similar programs.

"We can't have a cap-and-trade system that is regional. We need a cap-and-trade system for carbon dioxide that is national," Montana Gov. Brian Schweitzer, a Democrat, told the Finance Committee.

Like Schweitzer, businesses prefer a national, rather than regional, approach and also would like a more phased-in introduction of caps.

Three major energy trade associations -- Edison Electric Institute, American Gas Association and Electric Power Supply Association -- are backing mandatory federal curbs on climate-change emissions, a shift from their previous stance.

An unrelated coalition of U.S.-based businesses and leading environmental groups wants the federal government to move quickly to reduce greenhouse gas emissions and backs a federal cap-and-trade system.

The group, called the United States Climate Action Partnership, includes Alcoa Inc., Duke Energy Corp., DuPont Co., General Electric Co. and PG&E Corp. and Natural Resources Defense Council and Environmental Defense.

Although a cap-and-trade approach and greener technologies look promising, a tax incentive for energy efficiency could help lower emissions immediately, said Dan Reicher, the energy and climate initiatives director of Google Corp.'s new philanthropic venture called Google.org.

Chairman Baucus said Congress must move quickly not only because of environmental concerns, but to ensure U.S. energy security. He said America is too dependent on unstable foreign energy sources.

Baucus said in his opening remarks, "In the beginning, God began with energy: 'God said: 'Let there be light.' And there was light."

"We need to begin to think more about energy. Because when we flip on the switch, we still want the sentence to end: 'And there was light.'"

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